Does My Credit Score Matter When Someone Co-Signs a Car Loan for Me?

Lenders may ask you to find a co-signer if you seek a car loan but have a poor credit rating, inadequate income, or too little time on the job. Adding the co-signer’s good credit to your loan application can often help you to get the deal, but there can be situations where even a great co-signer isn’t enough. Before a potential co-signer adds his name to your account, he should also consider what can happen to his credit when he signs for your loan.

Since you’re the primary borrower, the lender will take a close look at your credit score, employment history, and length of time at your current address. If your score is too low or the lender feels for other reasons that you’re unlikely to be able to make your payments, it’s possible that even with a co-signer you will be turned down. This is especially true if your co-signer has good but not exceptional credit, or has a lot of debts of his own.

Co-signing comes with many risks for the co-signer. The loan shows up on his credit report and impacts his buying power; if he later needs a car or a home loan of his own, the co-signer might not be able to get it until your car loan is paid off. The co-signer is also putting his credit rating at risk, since if you fail to make your car payments, it not only hurts your credit, but it hurts his as well.

If you default on the loan for any reason and the lender decides to sue for the money, there’s always the chance that it will pursue the co-signer in court instead of going after you. It’s up to the lender to decide who to sue: only you, only the co-signer, or both of you. Since it was the co-signer’s credit that got you into your car, it’s likely that the lender will take him to court and force him to pay, even though he doesn’t have the car and cannot take it from you.

Make every effort to get a loan on your own, without a co-signer. Boost your credit rating as much as possible by paying all of your bills on time in the months prior to applying for a loan. Also save for a down payment. A substantial down payment makes your loan-to-value ratio on the car more favorable for the lender, and reduces the amount you need to borrow. A lender will usually require at least 20 percent down for borrowers with a poor credit rating.